2009 Exchequer Deficit

Is this a flame-throwing troll honeypot post?

I’m quite pleased with my own forecast for the tax take. This is what I posted here on 2nd October. I’ve edited it slightly, as it was in the context of a heated debate with some other posters, which I have no wish to revisit. All told, I think my own forecast for the tax take was more accurate than any other forecast I’ve seen either here or in the media, although I’ll naturally stand corrected if someone shows me one that came closer.

JohnTheOptimist – October 2009:

“Now, today’’s figures show that the slippage up to end-September was €965m (€23,706 collected against €24,671). So, it is slipping by an additional €200m a month. If we project that to year-end, it brings the slippage for the whole of 2009 to about €1,550m, which implies a tax take in 2009 of €32.9bn.”

The actual outcome for the tax take was 33.043 billion euros. So, I UNDER-estimated it by 143 million. In view of that, I may have to change my name to JohnThePessimist.

Fair play for publishing the figure now that the number is out…

JtO
What, counterfactually and hypothetically, would you have forecast using june/july figures?

Well done JtO your Oct forecast was pretty much spot on. And much closer than mine and many others.

Do you want to nail your colours to the mast for 2010 tax revenue?

As I am not one to gloat (except when Tyrone win the All-Ireland), rather than debate about who got it right and who got it wrong in 2009, it might be better if there was some serious discussion about what the figure actually means, and how it will affect the markets and investors’ perceptions of the Irish economy.

At the time of the December budget, which was only a few weeks ago, the figure given for the general government deficit in 2009 as a percentage of GDP was 11.75%. This is also the figure given in ESRI’s Quarterly Report, which was published after that budget. However, today’s figures show the deficit in 2009 coming in at 620 million less than predicted at the time of the December budget. So, by my reckoning (unless there is some other item hidden away in the small print of today’s returns), this means that the general government deficit in 2009 as a percentage of GDP will now be 11.4%. This is, of course, far from brilliant, but it is certainly below the forecast deficits for Greece, U. Kingdom and U. States. It is also quite close to what was forecast by Brian Lenihan (10.7%) in his April budget. In contrast, nearly every country, particularily the three mentioned above, have seen their predicted deficits greatly increase since April last. Back then, it was being widely predicted that Ireland’s deficit in 2009 would be by far the highest in the OECD. This is no longer the case. The budget outlook for other countries has worsened significantly since April, while holding relatively steady in Ireland. So, in relative terms, if not absolute terms, the bugetary situation for Ireland is much better now than in April last. I would hope this will be reflected in both the stock exchange and bond market.

@JohnTheOptimist
No real change in the bond markets today. Did trade after the finance figures were published.

Irish 10year spread went out 4bps while the Greek spread tightened by about 9bps.

@JohnTheOptimist
“In particular, excise and capital gains tax are way up in December 2009 compared with December 2008.”
Aside from the poor weather dissuading long-distance shopping to your neck of the woods (which we should be able to tell by the outcomes for Newry?), I’d say there were expectations of significant excise raises and capital gains tax changes in the budget.

Retailers habitually bet on excise changes by either running down stock levels or by over-ordering before the budget. If they are right the sums they win can be quite big.

I presume it is also possible to declare capital gains at a particular point in time rather than waiting for the mandatory return date?

PS congrats on your forecast. I was also looking at 30 bn income, but that was from before the doubling of the income levies and other changes in the emergency budget.

I don’t suppose we have any idea of the particular effects of the budgets? (Given that income has varied quite dramatically from other years).

@Dreaded_Estate

On balance, I think that the tax take might be slightly lower (2% to 4% lower) in 2010 than in 2009. But, spending will quite probably also be lower, so I think that the deficit (as a percentage of GDP) will probably be a bit lower in 2010 than in 2009. What matters most is the deficit, i.e. the gap between the tax take and spending, rather than the tax take or spending in isolation.

For example, the government is slashing public sector salaries. This means that public sector employees will pay less tax. But, the amount saved by cutting public sector salaries will exceed the tax loss resulting from those lower public sector salaries.

I’ll predict that the deficit will fall to 10.5% (compared with 11.4% in 2009).

Of course, it partly depends on what happens in the UK and on sterling.

Inflation is surging in the UK. In addition, their VAT rate just went up to 17.5% and may well be increased to 20% in May if the Tories win the election. If all these occur, the cross-border shopping trade will dry up and tax tevenues south of the border will benefit. Of course, if sterling were to collapse, that effect would be postponed. For the record, I was in Derry and Strabane on Saturday, and the number of cars with southern registration plates in the shopping-centre car parks was well down on a year ago, although to what extent this was due to the weather I couldn’t say. So, there are quite a few imponderables but, as of now, I think the deficit will come down in 2010.

It doesn’t really matter who was closest to the final figure (or who’s got the biggest flame-thrower).

The fact is that how we (Ireland) live (spending) and how we can actually afford to live (income) are simply poles apart and you would have to completely beggar the country in terms of both spending cuts and tax hikes to get them anywhere near each other….. and in the meantime, our borrowing will keep going up and up and we will have to find more and more to pay the interest…… meaning even less available to spend. And that’s all quite apart from what else we may yet have to find to keep pumping into the banks and propping up NAMA.

If I ran a household or business like that I would be rightly condemned.

Or is completely beggaring the country going to be what passes for a ‘strategy’ to solve our problems?

Why does the term ‘tax burden’ not get enough coverage in discussion. This economy, worth somewhere around 160-170bn is only generating a tax take of 33bn.

That is a tax burden of about 20%. It is this that is the root cause of our deficit, yet the predominat position is that we need to cut cut cut from spending of 54bn(which incidently is is a spending burden in the mid 30s….far from excessive).

It is disheartening to hear some political and economic commentaria saying we cannot tax our way out of this recession or deficit. There is ample scope to increae taxes.

We need to design a tax system that can generate 50bn from ordinary economic activity. That means higher taxes across the board.

Whatever about the precise deficit figure, it is big and recurring. Many of the general public seem to think it is a once off and, now that the tax take has (temporarily?) stabilised, all is rosey in the financial garden.

The garden still needs a lot of cultivating. Hopefully it is not on a flood plane and the Government won’t run out of manure.

@Damien
This has been discussed previously on this site and I am not sure that this is the most appropriate post to rehash the same material. But…

I think GNP is a much better measure of activity for the Irish economy and was about €140bn in 2009. Probably going to fall a little more in 2010.

Total government receipts in 2009 were about €53bn or 37% GNP.
Spending was about €73bn or 51% of GNP.

Another poster Ernie Ball posted this on the site previously.
Denmark 49.1
Sweden 49.1
Belgium 44.5
France 44.2
Norway 43.9
Finland 43.5
Italy 42.1
Austria 41.7
Iceland 41.5
Netherlands 39.3
United Kingdom 37.1
Hungary 37.1
Czech Republic 36.9
New Zealand 36.7
Spain 36.6
Luxembourg 35.9
Portugal 35.7
Germany 35.6
Poland 33.5
Canada 33.3
Ireland 31.9
Greece 31.3
Australia 30.6
Slovak Republic 29.8
Switzerland 29.6
United States 28.0
Japan 27.9
Korea 26.8
Turkey 24.5
Mexico 20.6
EU average 39.8
OECD average 35.9

Government revnue of 37% of GNP would put us above the OECD average and just below the EU average.
But spending of 51% would put Ireland very close to the top of that list.

The solution to the deficit is will be a combination of tax increases and spending cuts. Somewhere around 45% of GNP with a balanced budget which would put us just above France.

@Dreaded_Estate – “Somewhere around 45% of GNP ”

42-45% sounds like the right kind of ballpark.

Did 2009 figures have an extra month because the budget was brought forward in 2008 and would this distort the figures?

zhou_enlai

:-)!

JohnTheOptimist

Well done! I hope you continue to be optimistic and more importantly, just as accurate!

“I wish the Department would stop fiddling around with the dates on which taxes are due, as it makes it much harder to analyse the figures.”

Shhhhh! Foreign bankers read this blog!

We still cannot afford
NAMA!

Congratulations are due to JtOand it looks like some measure of fiscal stabilisation has been achieved with the prospect of an improvement in the current budget deficit for 2010. The details revealed in Notes 6 & 7 (some of which were already known) are a bit more worrying. The two (borrowed) contributions of €1.5 billion (2009 and 2010) to the NPRF financed (along with the €4 billion raid on the NPRF) financed to two €3.5 billion share purchases in AIB and BoI. These 2 €1.5 bilion contributions plus the €4 billion (lost) in Anglo comprise most of the non-voted capex. This has pushed the funding requirement up by €7 billion.

The NTMA came into the year with a big war chest in short term commercial paper (probably over a quarter fell due during the year and it’s not clear how much may be rolled over), but it has been forced to increase its reliance on bond issues upto €29 billion. (Perhaps if the famous “46” had focused on the issue of Government debt they might have escaped the Wrath of Garret!)

So far as I am aware much of this has been in Treasury Bills. Given the ratings agencies’ negative outlooks and spreads on longer bonds, this is no criticism of the NTMA, but it’s just kicking the ball out a bit further.

Even with an improvement in the current deficit, stable voted capex and some rollover of commercial paper the NTMA will be looking for something in the region of €22-23 billion. A bank recap of, say, €20 billion (and even with a massive raid on the NPRF) I can’t see the NTMA requiring less than €30 billion in bond issues during 2010.

Is this sustainable or achieveable?

yoganmahew Says:
“I’d say there were expectations of significant excise raises and capital gains tax changes in the budget….. …. I presume it is also possible to declare capital gains at a particular point in time rather than waiting for the mandatory return date?”

Yes, effectively. If you held a liquid asset which was “pregnant” with a capital gain, it would have made sense to sell it and crystallize the gain before the budget, as most people feared a rise in the CGT rate from 25% to 30% or more. Had you sold the asset before 30 November, the tax was due on 15 December. So the higher CGT tax take would at least in part mean that the yield will be lower at some date in the future.

lol… can i get a lend of a ‘somewhat short’ amount of money from ya?

@ Eoin

In relation to “scaremongering” it might be worth taking a step back to remember the substance of Dr. Fitzgerald’s intervention. His stance was that NAMA should be passed because failure to pass it would lead to an election and that this could lead to us being shut out of international sovereign bond markets. Similarly, his position in relation to the discussion of the deficit in the “46” piece was that this was dangerous talk that could lead to the bond market ceasing to lend to us.

It is open to question here who exactly was scaremongering—those who were warning of large losses associated with NAMA or those who said the bill simply had to pass or we would unleash a sovereign debt crisis.

@Brian Lucey – “Gerontocracy”

For an economist Brian, your knowledge of the English language never ceases to amaze me. Is there a word for old people who USED to govern and think that they still do? No rude ones please!

@ Karl

apologies if you thought i was dumping on you there, that wasn’t my intention. Im simply trying to explain that for a lot of people, whether they agreed or disagreed with the 46’s piece on a substantive level, that they felt Dr Fitz had a point bringing up the issue of the €30bn deficit. It wasn’t so simplistic as him “creating a controversy”. His comments at the time were as follows:

“Moreover, the statement made that we’re moving towards a deficit of €30 billion was quite irresponsible and that destroyed my confidence in the 46 economists.”

As i said at the time:

“While Dr Fitz’s criticism may be unfair on your opinion piece, picking a loose and eye catching deficit figure, in what was always going to be a controversial article, allows for an easy and valid opportunity to shoot down your argument right from the get-go without ever having to criticise many of the actual valid arguments you brought up within it.”

No offence, but is there anything inherently incorrect with how i saw it then, and how its played out since?

@ E65bn

“The shoes he was wearing may not have matched but he knew precisely when and where to stick out his foot.”

Im sorry, but does someone want to explain what exactly the first half of that sentance refers to?

Brian Lucy states:

”…Maybe here we have a Tyranno-gerontocracy..”.

Maybe what we have is a soft form of fascism.
The State has been aligned with Corporate interests and the power of the State is now used to uphold those interests.
The rights of Irish citizens are not considered unless they coincide with State/Corporate alignment.

As the economy declines and civic society is increasingly tearing itself apart the States/Corporate power is augmented at a frightening pace.
A reading of NAMA confirms the status the state now has to enter new arrangements with business and new constraints imposed on civic society.

You know the jig is up politically when the likes of Mattie McGrath FF TD and accomplices who routinely clown around on talk radio provide more effective political ‘opposition’ than the opposition.

David O’D
Heres an idea – no more pensions for retired public servants at the going rate of the job, COLA instead. No more limo-for-life for retired ministers or taoisaig. No cars from the ministers indeed, a bus pass (watch CIE improve….). Most people, outside the cushy hibernation pad that is LH, are full of ideas….

@Yogan
indeed….and they can cope with snow as well

@Dreaded_Estate

“JohnTheOptimist. Have you included any bank money for recapitalizations in the 10.75% deficit?”

No, I haven’t. My prediction is for the general government deficit. Isn’t it the exchequer deficit that includes bank money for recapitalizations? However, the difference between the two (the subject of a lot of debate on this site in 2009 as to which was the more important) may not matter in 2010. Both ESRI and Davy forecast that the exchequer deficit in 2010 will be slightly lower than the general government deficit (somethinng to do with banks repaying capital which I don’t fully understand).

Regarding my forecast of 10.75% of GDP for the general government deficit, I see that Davy this morning predict that it will be ‘below 11% of GDP in 2010’. So, quite close to mine. Doesn’t guarantee it will be correct, of course.

@JohnTheOptimist
Government accounts are murky at the best. So whether something is classified as general government deficit or exchequer deficit can be quite arbitary.

I was under the impression that any money used to recap Anglo would have to be included within general government deficit. But could be wrong.

@ DE

There’s a strong argument that the Anglo money should count in the GGB. Last year’s money put into it didn’t but that was a bit sneaky. This year’s might have to. I discussed this here.

http://www.irisheconomy.ie/index.php/2009/11/26/no-connection-between-bank-bailouts-and-budget-crisis/

Quote below:

I would note that even by the official definition of what is counted in the GGD and what isn’t, the call that the money that has gone into Anglo shouldn’t count as part of the GGD seems to be a dubious one. Here’s a link to the ESA95 documentation on this issue. Now go to page 58 of the PDF file. It’s the first page of the section discussing the appropriate accounting treatment for capital injections in public corporations. The section distinguishes between financial transactions, which should not count against the deficit, and non-financial transactions, which should count against the deficit. Non-financial transactions are described as follows:

“Acting this way, the government expects nothing in return in terms of dividends (most of the time the enterprise receiving such transfers does not pay dividends), nothing else than an improvement of the corporation’s wealth and the meeting of some social needs”

I would argue that this describes the Anglo capital injections pretty well and so they should count against the GGD. It will be interesting to see if, after the NAMA transfers, the government can continue to claim that Anglo capital injections don’t count against the GGD.

@Karl Whelan
I think that is pretty conclusive. Any money going into Anglo will have to be included within the the General Government debt.

@ Brian and Karl

my point has never been about whether the 30bn figure was in itself important in real terms vs 25bn. The point, as i have always contended, was that it was vague, toppish, eyechatching in that it began with a “3”, and easy to shoot down, (a) in terms of the EBD vs GGD and (b) because by your own words you took an ESRI figure of 25.7bn, added in your own calculations and got to 28bn. Yes, this is not the same as “equal to 30bn”, but I think we all live in a world where lots of ordinary people read a newspaper article quoting “close to 30bn deficit”, and they read simply “30bn”, and think of a “deficit” as the one which is typcially discussed in the papers, ie the GGD. Presto, they think the GGD will be 30bn, when the government has been insisting it will be a lot closer to 20bn. You know this, i know this, and i suggest Dr Fitz knew this.

It doesn’t matter whether GF was right or wrong in attacking you, you simply shouldnt have given him the opening to do so. Simply giving more detail on how you got to 28bn, or simply saying that this could play out in some of the bad scenarios, would’ve cleared it up and prevented GF’s attack, but alas you didn’t decide to go that route.

@Dreaded_Estate
Another striking moment in the NAMA debate occurred at the weekend of the Dublin Economics Workshop in October in Kenmare.

http://www.irisheconomy.ie/index.php/2009/10/19/free-speech-and-the-green-jersey/

Denis O’Brien is I believe a personal friend of Sean Fitzpatrick. He also has spoken of the support he received from Anglo when setting up 98 FM (if only they had stuck to lending to non-developer SMEs). Given that, he really shouldn’t have been slagging off economists for spending too much time discussing the largest financial decision in the history of the state.

Sean O’Rourke used these comments in his introduction:

“Presenter Sean O’Rourke introduced a report on the Dublin Economics Workshop in Kenmare (18 minutes in) by quoting Denis O’Brien’s comments about academic economists spending all of their time twittering and taking out ads in the newspaper.”

O’Rourke (who is having a terrible NAMA/banking crisis), after referring to Garret Fitzgerald’s endorsement of NAMA, then urged Pat Rabbitte to don the kryptonite jersey:

“Is there something to be said, and this is a theme that Garret FitzGerald has touched on in the last couple of weeks in his column, that there may be a case for people to pull on the green jersey as it were, set aside some of their more extreme doubts about NAMA and just see it through and give it a fair wind?”

But as if all this happening on one weekend wasn’t enough the NAMA lobby took two further steps to appease critics and silence debate through an apology/attack strategy:

Pat Farrell apologised to the economists for the state of our banks.
Pat McArdle told Morgan Kelly to shush: “Freedom of speech is fine and we’re all in favour of it. But there are sometimes when you have to temper things in the greater interest.”

As Karl Whelan commented at the time, although not quite in the language I use, a corrupt government had persuaded a remarkable number of commentators to give it unqualified backing for it’s corrupt bailout of its corrupt associates:

“So this is what it’s come to. People can object to the government’s policies on the budget or health or education or whatever but objections to NAMA—an initiative that involves spending up to €54 billion of public money—must be condemned as unpatriotic.

“In a supposedly open and democratic republic, this idea—that you should refrain from objecting to a government’s economic policies because this criticism runs counter to the national interest—would normally be considered morally repugnant. It says a lot about this country that this opinion is now being regularly aired by mainstream commentators in our print and broadcast media.”

As Paul McDonnell commented at the time:
“When someone challenges freedom of speech in the way that P McA has done it is not ‘doing his job’ for O’Rourke of RTE to simply kick the ball on by asking ‘isn’t that a valid argument – or whatever’. The correct, much more interesting, and more professional response is ‘what is it about the anti-NAMA argument that makes you so uncomfortable and would cause you to say such things.’.”

After the debate nobbling by the 2 former FG leaders, this was probably the biggest assault by the NAMA lobby, and I think it worked.
After Kenmare many economists donned the kryptonite jersey and the media impact of Morgan Kelly’s presentation was completely destroyed.

With the debate on the NAMA bill about to commence, it’s leading FG critic gagged by Kenny, and the FG & Labour finance spokespersons happy
to just go through the motions, the way was now clear for NAMA.
http://archives.tcm.ie/businesspost/2010/01/03/story46498.asp

@BL

GF has real stature for real reasons. GF was proven correct in relation to the deficit. You were proven wrong. Perhaps you should leave the issue of GF, his motives, his stature, his hobbyhorse and his appreciation of facts aside for the moment.

@ zhou
He said nothing when Sean O’Rourke and many, many others designated him as a NAMA supporter. He has a weekly column in a national newspaper. A two line statement would have sufficed: “Nothing I have said in relation to the economists letter should be taken as indicating support for NAMA.”

http://www.irishtimes.com/newspaper/opinion/2009/0911/1224254272287.html

This is how Stephen Collins saw it:

“It was not until former taoiseach Garret FitzGerald, and former Fine Gael leader Alan Dukes, expressed support for Nama as the least worst option available that some kind of balance began to come into the debate.”

Miriam Lord said:
“Nobody said a bad word about Garret FitzGerald, who also nailed his colours to the mast in his Irish Times column on Saturday. Sort of. Kind of. But not really in any criticism of Fine Gael way. At least that was the line yesterday.

No. You see Garret is so good, and concerned, and worried, that he thinks Nama might as well go ahead because, while he doesn’t know if it will work, it’s better than nothing. And nothing means the IMF coming in to return us to the Dark Ages and take away our decking.”

http://www.irishtimes.com/newspaper/ireland/2009/0908/1224254067469.html

There were many alternatives. He backed the NAMA one but even worse claimed there was no alternative. He was part of the NAMA lobby.

sean o’

Again with the accuracy!

You will also recall that events in the thirties took on a smilar tone as blue, brown and black shirts took on political significance. The problem with modern economists is that they can measure and calculate finely but know no history whatsoever. Niall Ferguson put Krugman in his place. Niall will win no IGnobel prizes!

CGT
Anyone with sense has been liquidating like crazy, and looking for a safe haven. After all it was easily seen what was likely to happen. What bugs me is that they paid. It runs counter to my thesis, that they would hang around at all, and therefore pay taxes which become statute barred, if they were so smart. Perhaps withholding taxes were more involved than normal? As when “non-residents” sell of land etc. Damn, why are there so many honest solicitors!!!! Rats leaving a sinking ship!

@BL

To assert that €27bn is “close to €30bn” is questionable when each €1bn represents about 0.5% of GDP!!

It is a bit fanciful to expect GF to reply to you here considering the light in which you paint him and his actions. Furthermore, one quality which most politicians have is that they get over the personal slights which befall them in their public life. They know that to crib, moan and to engage in personal tit-for-tat insults will make their position look weak and will make them unattractive to the public.

GF has experience of having his “arse in the bacon slicer” (as Mick McCarthy might say) in terms of national solvency and borrowing. He has also been through turmoil before and made his share of mistakes. Therefore he comes from a position of not only being an economist but also of having huge practical experience of these issues including the importance of communication. Your IT article of itself may hnot have scared the horses but GF felt that it was important to kill your (now admittedly vague) suggestion about the deficit.

As for GF supporting NAMA, again GF has practical experience of the Oireachtas and the legislative process. We are in a democracy where the Government controlling a majority in the Oireachtas propose the legislation that will be passed. The best FG or Labour could hope for was to bring down the Government. You suggested on the Morgan Kelly thread that further economic collapse might not be such a bad thing if it led to the kinds of political reforms you would like to see. I am starting to wonder just how extreme such reforms might be considering your unwillingness to accept the reality of our legislative process.

GF, like any blue-shirt would, lambasted FF for past performance but he pointed out that it would be an act of high folly both economically and politically to bring down the Government at that point. Horses can be scared and not al investors are sober pragmatists. Risk aversion is massive and sentiment can swing quickly as in the case of the real risk of contagion from potential Greek default as expounded upon by Philip Lane elsewhere on this blog.

You previously said that you were willing to take a chance on insititutional depositors withdrawing billions from Anglo in the case that its winding up was announced thereby immediately crystallising massive obligations for the exchequer. I think I would rather follow GF’s prudent approach to market sentiment than your brinkmanship.

@ Paul

actually just out from the NTMA…

*IRELAND’S NTMA PLANS TO RAISE UP TO EU20 BLN IN BOND MKT 2010

Not sure if this is “excluding bank recap” or whatever, suppose laerge amount of this yrs recap could come from NPRF…

By the by, Ireland will be almost unique within Europe in issuing LESS in 2010 than in 2009 (chiefly due to their being almost no redemptions in 2010).

I know I am coming to this discussion a little late, but the issues involved are clearly of ongoing relevance. As a non-economist, and as many of the figures involved are opaque, I wonder if someone could briefly outline the structural and non-structural elements of the deficit. I think there is little point in discussing a €25bn deficit (or an 11% of GDP deficit) in the abstract. If the figure includes one-off payments to Anglo and the other banks, or even if they includes extra expenditure on unemployment benefits that will reduce as we return to growth, we should not be too hung up on the overall deficit figure. What is more important is the structural gap between normal government expenditure and income, and how this gap will be bridged over the coming years. It is entirely appropriate to borrow for the one-off costs and pay them down over a longer period.